Question

Ayayai Corporation has 8,200 shares of $100 par value, 8%, preferred stock and 47,000 shares of $10 par value common stock outstanding at December 31, 2020.

Answer the questions in each of the following independent situations.

(a) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2017, what are the dividends in arrears on December 31, 2020, balance sheet?

The amount of dividends in arrears on the December 31, 2020

$

How should these dividends be reported?

The cumulative dividend is                                                           reportednot reported as a liability.

(b) If the preferred stock is convertible into 7 shares of $10 par value common stock and 4,700 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

(c) If the preferred stock was issued at $108 per share, how should the preferred stock be reported in the stockholders’ equity section? (Enter account name only and do not provide descriptive information.)

Ayayai Corporation Balance Sheet (Partial)
Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesPaid-in CapitalProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Paid-in CapitalTotal Property, Plant and EquipmentTotal Stockholders' Equity
			$

Answer 1

a. Dividends in arrears = No. of preferred shares x par value per share x rate of dividend x no. of years

=8200*100*8%*3

= $196,800

The cumulative dividend is disclosed in a note to the stockholders' equity section. It is not reported as a liability.

b.

Date	Accounts	Debit	Credit
	Preferred stock (4700*100)	$470000
	Common stock (4700*7*10)		$329000
	Paid in capital in excess of par - Common stock		$141000

c.

Ayayai Corporation Balance Sheet (Partial)
Preferred stock, $100 par, 8%, 8200 shares issued	$820,000
Paid in capital in excess of par - Preferred stock (8200 shares x $8)	$65,600